Summary
EV business model may not overcome competitive FCV threat.
Major automotive manufacturers are adopting and advancing FCV technology.
Avoid Tesla stock due to lack of product diversity and competitive forces.
by Joseph Ghanem of
www.seekingalpha.com
FCVs (Fuel Cell Vehicles) started out over a decade ago
as technology that was in its infancy stage, and clearly not ready for
prime time. A decade later, and it appears the time has come for fuel
cell vehicles to reclaim the mantle as the most energy efficient,
practical and realistic choice for the zero-emission car-buying
consumer.
Arguably, the most challenging issue facing Tesla (NASDAQ:
TSLA)
is the further development and prevalence of FCVs in the global
automotive industry. Fuel cell vehicles are gaining traction. And with
major auto makers, such as Toyota (NYSE:
TM), Hyundai and Honda (NYSE:
HMC)
starting to invest, it is only a matter of time before the technology
becomes mainstream. The existential threat that could derail Tesla is
not just smoke and water.
The eventual shift from EVs (Electric
Vehicles) to hydrogen-powered FCVs is real, and Tesla may be in serious
trouble.
Fuel Cells
There
are many different types of fuel cells available. For vehicle purposes,
the most common is the Polymer Electrolyte Membrane (PEM) fuel cell.
Source: Office of Energy Efficiency & Renewable Energy
The
process works by taking fuel (hydrogen) and oxygen molecules into the
fuel cell. Hydrogen is channeled to the anode, and oxygen to the
cathode. They are split through the use of a catalyst, which in most
cases is platinum. The hydrogen splits off into positive hydrogen ions
(protons), and negatively charged electrons. The PEM cannot let the
electrons into the membrane or else it would short circuit the fuel
cell. Once the hydrogen is split, the positive ions flow through the
membrane to the cathode. The electrons that were broken off from the
hydrogen also travel along an external circuit to the cathode, which in
turn creates an electrical current. At the cathode, the electrons and
the positive Hydrogen ions meet with oxygen to form water (H20), which
exits the fuel cell.
There are a few trade-offs
with this system. The first is the use of platinum as a catalyst for the
breakdown of the molecules. Platinum is an expensive material, and
without a replacement catalyst or a reduction in price fuel cells will
always be expensive to produce. Secondly, separating oxygen
significantly reduces electricity that can be generated due to the
difficult nature of splitting oxygen molecules, which makes the process
of producing electricity from the circuit less efficient.
Fuel
cells are also extremely sensitive to any permutation in the system.
Electrons need to flow through the proper channels; they cannot leak
into the membrane where the positive hydrogen ions pass through to meet
oxygen. Furthermore, hydrogen is volatile to store. In order to safely
house hydrogen, fuel tanks in cars need to maintain pressure in a PSI
range of
5000-10,000.
Infrastructure
While
fuel cell technology has advanced in recent years, the infrastructure
for hydrogen refueling stations is currently not where it needs to be
for fuel cell vehicles to become mass-market. This issue seems to be the
Achilles heel of fuel cell vehicles, as a lack of refueling stations
would lead to marginal sales volume. However, major investment into
hydrogen fueling networks have begun in California and the Northeastern
states. With time and capital, the network of hydrogen refueling
stations will continue to grow as fuel cells gain efficiency and
popularity.
California has been the leader in
support of zero-emission vehicles; offering rebates in the range of
$3000-$5000. In 2014, the California Energy Commission
announced
it would invest $46.6 million to speed the development of hydrogen
fueling stations, with the hope of reaching the goal of 100 refueling
stations that would allow for the commercialization of FCVs in
California. The state is planning to double the number of hydrogen
refueling stations that are currently available this year. According to
the California Fuel Cell Partnership, there are twelve available
hydrogen refueling stations in California. The
map also shows about another 30 retail locations that are in development. In an
interview, Hyundai Motor America CEO David Zuchowski anticipates 40 refueling stations to be open before the year's end of 2016.
Though California is the testing ground for new technology, Toyota sees promise in the Northeast.
Toyota
is helping to develop and supply, with the help of France's Air
Liquide,
twelve hydrogen refueling stations in Connecticut,
Massachusetts, New Jersey, New York, and Rhode Island. The plan for
Northeastern hydrogen refueling stations is part of a broader coalition
called The Northeast Electrochemical Energy Storage Cluster (
NEESC).
NEESC has outlined hydrogen and fuel cell development plans for eight
states located in the Northeast, with the goal to "increase awareness
and facilitate the deployment of hydrogen and fuel cell technology."
Further advancing infrastructure, eight Northeastern states have signed a
memorandum of understanding that would require manufacturers to sell
3.3 million zero emission vehicles in the geographic area. This figure
includes both FCVs and EVs. The NEESC has a goal of 110 hydrogen
refueling stations by the end of 2018 in the Northeast.
Another
alternative is the installation of hydrogen refueling stations at
already established gasoline stations. The move would make sense, as a
shift to EVs in the United States and in Europe would affect the
revenues of oil companies. However, providing hydrogen alongside
traditional gasoline at these stations would create the opportunity for
an additional revenue stream, while maintaining the core business. Shell
has been
adopting hydrogen fueling stations to select locations in California, with plans to add more in the future.
Through
the use of existing stations, building the infrastructure needed for
mass-market hydrogen consumption is the most realistic. The problems
that are associated with hydrogen, such as transportation and storage,
would be alleviated by direct lines to the pump at the gas station. As
well, many states derive tax revenue for the building and fixing of
roads, bridges, and highways from gasoline taxes. With a gradual shift
from gasoline to hydrogen, oil companies can maintain relevance, while
the state can still collect taxes on the fuel coming out of the pump.
The current amount of
capital needed to add-on or build a hydrogen refueling station totals $1
million, yet, the actual cost comes closer to $1.5 million, according
to Hyundai Motor America CEO David Zuchowski. While electric charging
stations typically
require
an average of $250,000 to install, hydrogen refueling stations require
more intensive construction and maintenance. Despite needing the
additional capital to fund the infrastructure, the business perspective
paints a clearer picture.
A typical EV takes around 8-14 hours for
level 1 charge (120 volt AC) or 4-9 hours for a
level 2 charge (240 volt AC). Tesla's supercharger only recharges around
50%
of the battery after 30 minutes. The supercharger is not a public
charging station or high voltage outlet, and requires a specially built
station to output 120 kW of DC power. Consequently, batteries are not
like gasoline or fuel cell vehicles in the way that the car must reduce
the current above a certain percentage to top off the battery. With that
in mind, it would take Tesla's supercharger nearly 75 minutes to fully
charge a 90 kWh Model S.
From the hydrogen
perspective, a FCV takes no more than 3-5 minutes to fill up. Given the
early stages of hydrogen refueling station technology, that time
estimate would likely drop with advancements. To a business, the number
of electric charging stations required to satisfy public demand would be
at least four to five times the amount comparable to hydrogen stations.
That also assumes that EVs can be charged 50% in a decent amount of
time, much like the Model S. From that point of view, electric charging
stations do not seem to make much sense for any business to own and
operate, as home recharging would seem like the only viable solution to
consumers.
Models
Development
of FCVs have been underway for years. Hyundai released their first FCEV
(Fuel Cell Electric Vehicle) in 2001 with the Hyundai Sanata Fe FCEV.
Honda's first delivered model of fuel cell cars was the 2002 FCX. Over
the past year, there have been numerous car companies expanding their
lineup to include new FCVs. As production costs associated with fuel
cells declines, more auto manufacturers will begin creating models that
can leverage the new technology. A list of recent models produced by
different companies is as follows:
- Audi - A7 H-Tron Quattro
- Honda - FCX Clarity
- Hyundai - Tucson Fuel Cell
- Mercedes-Benz B-Class F-Cell
- Toyota - Mirai
Focusing on the Toyota Mirai which was recently released, how does it compare against a similar style EV? The Volkswagen (
OTCPK:VLKAY)
E-Golf is a sedan EV that is roughly the same in dimensions and weight
as the Mirai, making for a good study in the differences between FCVs
and EVs. The Volkswagen E-Golf
starts
at a base MSRP of $29,800, with a 24 kWh battery and an EPA range of 83
miles. The base model does not come equipped with a 7.2 kW onboard
charger, and instead has a level 2 charger rated at 3.6 kW. Charging to
full takes roughly four hours for the base model. If the 7.2 kW onboard
charger is added, the time is reduced to around two hours. The motor
outputs 115-hp and 199 lb-ft of torque.
The Toyota Mirai, meaning "future" in Japanese,
starts
close to $58,500. The Mirai also qualifies for federal tax and state
tax credits like EVs do. Toyota offers three years of complimentary
hydrogen fuel to all new buyers, which can be seen as a $10,000 value if
it is assumed hydrogen fuel prices maintain parity with gasoline.
Refueling takes only about 5 minutes, and on a full tank of hydrogen the
car gets an estimated 312 mile range. The electric motor powering the
Mirari outputs 151-hp and 247 lb-ft of torque.
Even
though this is one comparison, the differences are evident. Barring the
price difference, the Toyota Mirai beats out the Volkswagen E-Golf in
range, fill time, and power. The only major distinguishing factor is the
price. Electric vehicles have been in production for a better part of
the last decade, and it should come as no surprise that they will be
cheaper than new fuel cell powered vehicles. Once cheaper materials and
more efficient fuel cell stacks are created, the price of FCVs will come
down to match EVs, making FCVs more economically beneficial.
Consumer Perspective
The
battle over which zero-emission vehicle is more efficient is
meaningless if the consumer perspective is discounted. Consumers have
grown accustom to using gas stations as the means to fill their car up.
The difference between charging an EV, which might take up to 14 hours
depending on the voltage being used, or five minutes that it takes to
refill a FCV cannot be understated. In today's fast-paced environment,
the need to charge a car every day or two can simply become an
inconvenience.
The negatives of EVs do not
stop from a time standpoint, but also from an efficiency standpoint. On
average, EVs have their range reduced by
57%
in cold weather (20 degrees Fahrenheit), and 33% in extreme heat (95
degrees Fahrenheit). Combined with the fact that EVs have less overall
range than comparable FCVs, the benefits of a FCV become clear. Group
Vice President and General Manager of the Toyota Division, summed up the
benefits of FCVs over EVs best in an
interview at the 2014 Chicago Auto Show:
It really provides all the benefits of a plug-in EV without the range anxiety and without the time it takes to recharge it.
Takeaway
What
the future holds for the next generation of zero emission vehicles is
certainly up for debate. Right now, major automotive brands are gearing
up, picking a side and fighting for the zero emission vehicle of their
choice. Toyota, Hyundai, Honda and a few others have already committed
to creating fuel cell vehicles going forward. Stalwart brands, such as
Tesla, Nissan (
OTCPK:NSANY), and GM (NYSE:
GM) have remained steadfast in their commitment to further developing EVs.
The
difference comes down to practicality and convenience. In the end, the
consumer is what drives the market for any new technology. I fully
anticipate that once the infrastructure for hydrogen refueling is
sufficient FCVs will catch on with car makers and consumers. The
advantages FCVs offer over EVs are numerable, and with each passing day
fuel cell technology improves.
To a company like
Tesla whose core brand is built around all-electric vehicles, this
paradigm shift presents a problem. Every other car company can adapt to
changing market conditions by offering products that consumers demand.
However, Tesla limits themselves by only offering EVs. Couple the lack
of car options with the poor financial health of the company, Tesla
seems to be in dire straits. Due to the reasons outlined above, I would
recommend staying clear of the stock.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this
article myself, and it expresses my own opinions. I am not receiving
compensation for it (other than from Seeking Alpha). I have no business
relationship with any company whose stock is mentioned in this article.
Source;
http://seekingalpha.com/article/3956209-avoid-tesla-hydrogen-new-electric
